Best Conservative Hybrid Mutual Funds for Investment in September 2024
Given the uncertainty of the world’s economy and the continuous rally of the Indian stock market, numerous financial analysts are now recommending hybrid mutual funds as the safest and soundest investment for aspiring investors. Hybrid funds combine both equity and debt, thus making them extra attractive and appealing to new and cautious investors.
Among them, its believed that a conservative hybrid fund is an excellent choice. It has 75-90% of its corpus in debt and 10-25% in equities, as per the SEBI regulations. Good for cautious investors who want some participation in equities without taking too much risk.
These funds are allocated to a conservative risk profile, similar to the erstwhile MIPs that were in vogue to address a regular income. Once more, wholly depending on hybrid funds for a dividend cheque is quite a gamble as markets can go haywire. A better option for regular income is a Systematic Withdrawal Plan (SWP) but be sure to withdraw only what your investments generate in terms of returns so that you do not end up eating into your capital.
Why Conservative Hybrid Funds?
Some exposure to equities for those conservative investors seeking to dip their toes in the equities market.
Even though there is a maximum cap on exposure at 25%, one needs to constantly remind oneself that equity investment is not risk-free and certainly, no returns are guaranteed annually.
Recommended Funds for September 2024
1. ICICI Prudential Regular Savings Fund
2. Canara Robeco Conservative Hybrid Fund
3. Kotak Debt Hybrid Fund
4. SBI Conservative Hybrid Fund
Methodology for Selecting the Best Conservative Hybrid Funds
1. Mean Rolling Returns: It calculates the average performance by rolling returns over the last three years on a daily basis.
2. Three-Year Consistency: The level of consistency is measured using the Hurst Exponent, H. A higher value of H indicates lower volatility because it displays persistence in fund returns over time.
H = 0.5: It represents returns in a geometric Brownian time series. At this time, the future performance cannot be predictable in easy terms.
H < 0.5: It also displays mean-reverting returns. Thus, bad performance is liable to recover.
H > 0.5: Returns are persistent, meaning they show a more vigorous trend.
3. Downside Risk: This measures only the negative returns. It is calculated by adding all the squares of the negative returns and then dividing by the number of days considered; the square root of the result is then done. This measure underlines the vulnerability of the fund to market declines
4. Outperformance: This gauges how the returns in the fund fare compared to the market, respectively for the equity and debt components.
- Equity Portion: Measured with the aid of Jensen’s Alpha, which measures the risk-adjusted returns versus market expectations.
- Debt Portion: Return measured against a benchmark, and rolling return is the active return of the fund.
5. Asset Size: Hybrid Funds having asset sizes less than Rs.50 crores have been eliminated for two reasons- issues of liquidity and sustainability.
Conclusion
Conservative hybrid mutual funds present a balanced approach for the cautious investor who wishes to dabble in the equity markets while still maintaining a secure investment in debt. Some expect these funds to do well for those wanting steady returns with limited risk in 2024.
